Thursday, February 14, 2013
A HOLC 1936 security map of Philadelphia showing redlining of lower income neighborhoods. Households and businesses in the red zones could not get mortgages or business loans.
Redlining is the practice of denying, or charging more for, services such as banking, insurance, access to health care, or even supermarkets, or denying access to jobs to residents in particular, often racially determined, areas. The term "redlining" was coined in the late 1960's by John McKnight, a sociologist and community activist.It refers to the practice of marking a red line on a map to delineate the area where banks would not invest; later the term was applied to discrimination against a particular group of people (usually by race or sex) irrespective of geography. During the heyday of redlining, the areas most frequently discriminated against were black inner city neighborhoods. For example, in Atlanta in the 1980's, a Pulitzer Prize-winning series of articles by investigative-reporter Bill Dedman showed that banks would often lend to lower-income whites but not to middle- or upper-income blacks. The use of blacklists is a related mechanism also used by redliners to keep track of groups, areas, and people that the discriminating party feels should be denied business or aid or other transactions. In the academic literature, redlining falls under the broader category of credit rationing.
Reverse redlining occurs when a lender or insurer targets minority consumers, not to deny them loans or insurance, but rather to charge them more than could be charged to a comparable majority consumer whose business is more sought after.
Although in the United States informal discrimination and segregation have always existed, the specific practice called "redlining" began with the National Housing Act of 1934, which established the Federal Housing Administration (FHA). Racial segregation and discrimination against minorities and minority communities pre-existed this policy.. The decay of minority inner city neighborhoods from withheld mortgage capital and difficulty for neighborhoods to attract and retain families able to purchase homes was aggravated by the implementation of this federal policy. In 1935, the Federal Home Loan Bank Board (FHLBB) asked Home Owners' Loan Corporation (HOLC) to look at 239 cities and create "residential security maps" to indicate the level of security for real-estate investments in each surveyed city. Such maps defined many minority neighborhoods in cities as ineligible to receive financing. The maps were based on assumptions about the community, not accurate assessments of an individual's or household's ability to satisfy standard lending criteria. Since African-Americans were unwelcome in white neighborhoods, which frequently instituted racial restrictive covenants to keep them out, the policy effectively meant that blacks could not secure mortgage loans at all. At various times the practice also affected other ethnic groups, including Latinos, Asians, and Jews. The assumptions in redlining resulted in a large increase in residential racial segregation and urban decay in the United States. Urban planning historians theorize that the maps were used by private and public entities for years afterwards to deny loans to people in black communities. However, recent research has indicated that the HOLC did not redline in its own lending activities, and that the racist language reflected the bias of the private sector and experts hired to conduct the appraisals.
On the maps, the newest areas — those considered desirable for lending purposes — were outlined in blue and known as "Type A". These were typically affluent suburbs on the outskirts of cities. "Type B" neighborhoods were considered "Still Desirable", whereas older "Type C" were labeled "Declining" and outlined in yellow. "Type D" neighborhoods were outlined in red and were considered the most risky for mortgage support. These neighborhoods tended to be the older districts in the center of cities; often they were also black neighborhoods.
Some redlined maps were also created by private organizations, such as J.M. Brewer's 1934 map of Philadelphia. Private organizations created maps designed to meet the requirements of the Federal Housing Administration's underwriting manual. The lenders had to consider FHA standards if they wanted to receive FHA insurance for their loans. FHA appraisal manuals instructed banks to steer clear of areas with "inharmonious racial groups", and recommended that municipalities enact racially restrictive zoning ordinances, as well as covenants prohibiting black owners.
Urban Disinvestment; The Citizen Battle Against Redlining
Following a National Housing Conference in 1973, a group of Alinsky-style Chicago community organizations led by The Northwest Community Organization (NCO) formed National People's Action (NPA), to broaden the fight against disinvestment and mortgage redlining in neighborhoods all over the country. This organization led by Chicago housewife Gale Cincotta and Shel Trapp, a professional community organizer, targeted The Federal Home Loan Bank Board, the governing authority over Federally chartered Savings & Loan institutions (S&L) that held at that time the bulk of the country's home mortgages. NPA embarked on an effort to build a national coalition of urban community organizations to pass a national disclosure regulation or law to require banks to reveal their lending patterns.
For many years, urban community organizations had battled neighborhood decay by attacking blockbusting, forcing landlords to maintain properties, requiring city's to board up and tear down abandoned properties. These actions addressed the short term issues of neighborhood decline, but until neighborhood leaders began to understand that these issues and conditions were mere symptoms and that disinvestment was the true, though hidden underlying cause of these problems, they could do little to do to stop the slow, steady, inexorable spiral of decline.
With the help of NPA, a coalition of loosely affiliated community organizations begins to form. At the Third Annual Housing Conference held in Chicago in 1974, eight hundred delegates representing 25 states and 35 cities attended. Due to the fact that a vast majority of home mortgages are held by Federal Savings & Loans, the strategy naturally focused on the Federal Home Loan Bank Board (FHLBB), the federal agency that oversees S&L's in cities all over the country.
Some notable victories arrived in 1974: Chicago's Metropolitan Area Housing Association (MAHA), made up of representatives of the Chicago organizations, succeeded in having the Illinois State Legislature pass laws mandating disclosure and outlawing redlining. Meanwhile in Massachusetts, organizers allied with NPA confronted a unique strategic situation. Over 90% of home mortgages were held by state-chartered savings banks. A neighborhood community organization based in the Jamaica Plain neighborhood successfully injected the disinvestment issue into the statewide gubernatorial race. At a regional housing conference, The Jamaica Plain Banking & Mortgage Committee and its citywide affiliate, The Boston Anti-redlining Coalition (BARC), won a commitment from Democratic candidate Michael S. Dukakis to order state-wide disclosure through the Massachusetts State Banking Commission. Risking the wrath of the big Boston financial institutions, Dukakis' new Banking Commissioner ordered banks to disclose mortgage-lending patterns by zip code.
In their recent book Gale Force, The Battles For Disclosure and Community Reinvestment, Michael and Ann Vick-Westgate discuss in detail a series of interviews and anecdotes from many of the activists involved, as well as the extraordinary story of the impact of community groups taking on complex issues and successfully pursuing reform from the streets of our major cities to the halls of congress.
Once NPA and its affiliates had achieved disclosure of lending practices with the passage of The Home Mortgage Disclosure Act of 1975 and the signing of it into law by President Gerald Ford on January 3, 1976, NPA turned its sights towards a strategy for reinvestment, undoing the harm that had been caused by disinvestment. This actions led to the passage in 1977 of the Community Reinvestment Act.
Redlining paralyzed the housing market, lowered property values and further encouraged landlord abandonment. As abandonment increased, the population density became lower. Abandoned buildings would serve as havens for drug dealing and other illegal activity.
The film Revolution '67 examines the practice of redlining that occurred in Newark, NJ in the 1960's.
In the United States, the Fair Housing Act of 1968 was passed to fight the practice. It prohibited redlining when the criteria for redlining are based on race, religion, sex, familial status, disability, or ethnic origin. The Office of Fair Housing and Equal Opportunity was tasked with administering and enforcing this law. Anyone who suspects that their neighborhood has been redlined is able to file a housing discrimination complaint. The Community Reinvestment Act of 1977 further required banks to apply the same lending criteria in all communities. Although open redlining was made illegal in the 70's through community reinvestment legislation, the practice may have continued in less overt ways. AIDS activists allege redlining of health insurance against the LGBT community in response to the AIDS crisis, though no evidence exists to support this claim.
ShoreBank, a community-development bank in Chicago's South Shore neighborhood, was a part of the private-sector fight against redlining. Founded in 1973, ShoreBank sought to combat racist lending practices in Chicago's African-American communities by providing financial services, especially mortgage loans, to local residents. Many sources characterize ShoreBank's efforts as overwhelmingly inspirational and successful. In a 1992 speech, then-Presidential candidate Bill Clinton called ShoreBank "the most important bank in America." On August 20, 2010, the bank was declared insolvent, closed by regulators and most its assets were acquired by Urban Partnership Bank.
Dan Immergluck writes that in 2002 small businesses in black neighborhoods still received fewer loans, even after accounting for business density, business size, industrial mix, neighborhood income, and the credit quality of local businesses. Gregory D. Squires wrote in 2003 that it is clear that race has long affected and continues to affect the policies and practices of the insurance industry. Workers living in American inner cities have a harder time finding jobs than suburban workers. Redlining has helped preserve segregated living patterns for blacks and whites in the United States, because discrimination motivated by prejudice is often contingent on the racial composition of neighborhoods where the loan is sought and the race of the applicant. Lending institutions such as Wells Fargo have been shown to treat black mortgage applicants differently when they are buying homes in white neighborhoods than when buying homes in black neighborhoods.
Reverse redlining occurs when a lender or insurer particularly targets minority consumers, not to deny them loans or insurance, but rather to charge them more than would be charged to a similarly situated majority consumer, specifically marketing the most expensive and onerous loan products. These communities had largely been ignored by most lenders just a couple decades earlier. However these same financial institutions in the 2000's saw black communities as fertile ground for subprime mortgages. Wells Fargo for instance partnered with churches in black communities, where the pastor would deliver "wealth building" seminars in their sermons, and the bank would make a donation to the church in return for every new mortgage application. There was pressure on both sides, as working-class blacks wanted a part of the nation’s home-owning trend.
A survey of two districts of similar incomes, one being largely white and the other largely black, found that branches in the black community offered largely subprime loans and almost no prime loans. Studies found out that high-income blacks were almost twice as likely to end up with subprime home-purchase mortgages as low-income whites. Loan officers were also apparently aware that what they were doing was exploitative, as they referred to blacks as “mud people” and to subprime lending as “ghetto loans.” A lower savings rate and a distrust of banks stemming from a legacy of redlining may help explain why there are fewer branches in minority neighborhoods. In recent years while subprime loans were not sought out by borrowers, brokers and telemarketers actively pushed them. A majority of the loans were refinance transactions allowing homeowners to take cash out of their appreciating property or pay off credit card and other debt.
Several state attorney generals have begun investigating these practices, which may violate fair lending laws, and the NAACP have filed a class-action lawsuit charging systematic racial discrimination by more than a dozen banks.
Redlining Property Type. Other forms of redlining include the nullification of mortgage loans based on internal bank policies and procedures that fail to recognize complex property types. Co-Op and Condo Conversions in New York City are one such example. These building types are often made up of legacy rent-controlled and rent-stabilized units or may contain another protected class of tenant. Lenders who practice redlining often cite sponsor concentration or high rental concentration as an excuse to redline the property type. Such internal policies run counter to state and municipal laws and statutes, and are an illegal form of silent judgment on the economic and racial makeup of a building.
Retail redlining is a spatially discriminatory practice among retailers, of not serving certain areas, based on their ethnic-minority composition, rather than on economic criteria, such as the potential profitability of operating in those areas. Consequently, consumers in these areas often find themselves vulnerable because no other retailers will serve them. They may be exploited by other, often smaller, retailers who charge them higher prices and/or offer them inferior goods.
Credit card redlining is a spatially discriminatory practice among credit card issuers, of providing different amounts of credit to different areas, based on their ethnic-minority composition, rather than on economic criteria, such as the potential profitability of operating in those areas. Many believe policies of credit card companies such as American Express that reduce credit lines of individuals that make purchases at retailers frequented by so-called "high-risk" customers to be akin to redlining.
Racial profiling or redlining has a long history in the property-insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry. Home-insurance agents are generally able to detect the race of someone who contacts them by telephone. This information affects the services provided to those who inquire about purchasing a home-insurance policy. This type of discrimination is called linguistic profiling. There have also been concerns raised about redlining in the automotive insurance industry. Credit-based insurance scores have been shown to produce unequal results by ethnic group. The Ohio Department of Insurance currently (2011–12) allows insurance providers to utilize maps and collection of demographic data by zip code in determining insurance rates. This practice has been criticized as the state promotion of red lining practices.
In December 2007, a class action lawsuit was brought against student loan lending giant Sallie Mae in the United States District Court for the District of Connecticut, alleging that Sallie Mae discriminated against African American and Hispanic private student loan applicants.
The case further alleged that the factors Sallie Mae used to underwrite private student loans caused a disparate impact on students attending schools with disproportionate minority populations. The suit also alleged that Sallie Mae failed to properly disclose loan terms to private student loan borrowers.
Policies related to redlining and urban decay can also act as a form of environmental racism, which in turn have an impact on public health. Urban minority communities may face environmental racism in the form of parks that are smaller, less accessible and of poorer quality than those in more affluent or white areas in some cities. This may have an indirect impact on health, since young people have fewer places to play and adults have fewer opportunities for exercise.
Robert Wallace writes that the pattern of the AIDS outbreak during the '80's was affected by the outcomes of a program of "planned shrinkage" directed at African-American and Hispanic communities. It was implemented through systematic denial of municipal services, particularly fire protection resources, essential to maintain urban levels of population density and ensure community stability. Institutionalized racism affects general health care as well as the quality of AIDS health intervention and services in minority communities. The overrepresentation of minorities in various disease categories, including AIDS, is partially related to environmental racism. The national response to the AIDS epidemic in minority communities was slow during the '80's and '90's, showing an insensitivity to ethnic diversity in prevention efforts and AIDS health services.
Instead of denial of services to low-income neighborhoods, sometimes the exact opposite can occur as well when it is the most lucrative option for the service providers. When those services are believed to have adverse effects on a community, that can be considered to be a form of "reverse redlining." The term "liquorlining" is sometimes used to describe high densities of liquor stores in low income and/or minority communities relative to surrounding areas. As neighborhoods decline in income, supermarkets, grocery stores, and other retail outlets move out, but liquor stores remain. However, unlike redlining, this is usually not illegal. The opposite of liquorlining is true in the city of Philadelphia, where, as in the rest of Pennsylvania, all alcoholic beverages except beer are sold by state-owned liquor stores. Many of the chain's stores in low-income urban areas are significantly smaller than those in popular suburbs, and have much more limited hours and selection. This disparity has only been apparent since circa 2005, however. Lansdowne, Pennsylvania and Chester, Pennsylvania are some of the rare suburban examples of this trend.
Posted by Palmer at 12:15 PM